January 4, 2022  BACK

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Presenting This Month:

  • Mi Tero
  • Vinergy Inc.

Featured in this issue:

  • Ksenia Yudina, founder of UNest
  • BeTheBeast cofounder Shane Mahoney
  • Larry Uhl, Pasadena Angels' member profile

Welcome to 2022! This issue of the Pasadena Angels newsletter includes a brief summary of the three companies presenting on Wednesday. You'll also find a profile of a founder (Ksenia Yudina), a platform for college recruiting (BeTheBeast), and a member of the Pasadena Angels, Larry Uhl. 

Liquidity Event Update

COMPANY: BeeTheBeast

What they do: BeTheBeast is the LinkedIn for youth sports, empowering players/parents/coaches with the industry’s first recruiting ecosystem solution. The Company's platform manages & transforms player data into profiles while generating recruiting media content that enables event participation, college recruiting, live streaming, and statistical analysis to the fast growing youth sports industry.

 

CEO: Shane Mahoney

Startups Presenting Wed, Jan 5

COMPANY: Mi Terro           https://www.miterro.com/

Presenter:       Robert Luo, Founder

What they do: Mi Terro powers big data to create home compostable, plastic-alternative biomaterials made from plant-based agricultural waste.

COMPANY: Vinergy, Inc. Presenter:       John Paul Lake, Founder

What they do: Vinergy designs and produces electrically powered material handling equipment initially targeted for the agriculture and landscaping industries.

Past Issues:

Founder Profile - Ksenia Yudina,
CEO of UNest

 

In early 2020 Ksenia Yudina had a great board meeting. UNest was two years old and had been growing well. The board was encouraging her to raise some big-time Series A funds. She set up meetings and was packed to fly to the Bay Area the next day when Tom Hanks got COVID, the NBA shut down, and travel to Europe was halted. Also, all Venture Capital meetings were cancelled and all funding of companies not already in a portfolio was - unofficially - cancelled.

For a couple months, all startup financing was frozen, and all Ksenia could do was to watch the clock while her eight months of runway dwindled to seven, and then to six. She was two years into launching UNest. She was the founder, but in those early days, that meant that she was also the CTO responsible for UX and UI. She was the CFO, responsible for financing. She was also the Chief Marketing Officer. She’d filled every gap as it emerged. Two years of flexibility and resourcefulness had helped her launch and raise some money from friends and family and Angels like the Pasadena Angels. But, just about no one was prepared for COVID-19.

Ksenia’s career had been in finance, interrupted by a couple years at the Anderson School of Management at UCLA where she earned her MBA. At Capital Fund she worked with wealthy clients. She observed that, for many of them, their number one priority was their children. Then her friends who had recently gotten married called her about financial advice for their children, and she realized two universal truths: 1) everyone cares about their children, and 2) no one understands 529s. That last one may not even be an overstatement, because there are 50 different 529 programs, and there’s no real need to be an expert in all of them. They’re each run by the individual 50 states, who aren’t exactly masters of marketing and communication. As a result, most of the country’s parents aren’t very clear on 529s. Ksenia recognized the universal need and the very confused solution to fill that void, and that was the inspiration for UNest. 

The education-saving industry is resistant to change. The states are not friendly to integration and there are no APIs. But, there are a few financial firms that help people set up 529 accounts, and it was through one of these that UNest started working to help parents set up savings accounts for their children. UNest prioritized the front-end, making the signup process smooth and elegant. But the back-end was reliant on faxes to the service provider, who quickly grew tired of this new channel funneling them a great quantity of very small accounts. They started dragging their feet with UNest’s customers. But, given their position facilitating these government-run accounts, they had a functional monopoly. 

Ksenia complained and then warned and then pressured them with no luck. So, then she found an attorney and filed a lawsuit. She learned a lot from the process, including how to ensure your attorney is properly motivated (equity, in case you’re wondering). The judge saw it the same way Ksenia’s attorney did: this service provider had a lot of market power, which they appeared to be using to shut down competition until they could develop their own app. He cleared the case for discovery. Suddenly there was a settlement offer. (Epilogue: a year later, they came out with their own app.)

But the whole debacle made Ksenia rethink 529s. Customer feedback was that 529s were too inflexible - if your kids don’t go the traditional college route, you lose not just the tax advantage but also the penalty! There was a better solution: UTMA accounts. They are tax advantaged, but much more flexible. Ksenia shifted UNest to the UTMA route in February of 2020, and growth blossomed. And, then COVID hit.

But, COVID didn’t stop funding forever, and UNest raised Series A in 2020 and Series B in late 2021, collecting a total of nearly $40 million in financing. Those rounds funded hiring senior positions in technology, marketing and operations, which meant that Ksenia became Chief Recruitment Officer. After that, she was focused on customer acquisition. When you’re a founder, “every six months the world changes,” she explained. 

And, 2022 will be no different. Ksenia’s excited about their new product launch: UNest Legacy is starting to accept people onto the waiting list. It will let customers gift individual stocks, NFTs, and crypto next year. Gone are the old days of putting a stock certificate in an envelope. These days, grandparents want to put some ethereum in their young ones’ accounts. And, UNest will be there to help.

Company Profile - BeTheBeast and Shane Mahoney

Shane Mahoney, BeTheBeast cofounder, has mastered the elevator pitch. He’s got it down to three words: “LinkedIn for Sports.” 

College recruiting is a big business, not just because there are thousands of colleges recruiting in dozens of sports from tens of thousands of high schools, but also because there’s a lot at stake (see Operation Varsity Blues). For those who do it the right way, there’s a lot of searching and evaluating before the offering and accepting. 

Back in the day, a recruiter would scribble a number down on a yellow pad and call the coach later: “Tell me about number 23.” And the coach would extol the virtues of the point guard’s shooting ability and academic potential.

Then BeTheBeast enabled recruiters to search for number 23. Then they could search for “point guard, GPA >= 3.5, scoring average >= 12 PPG. That was the state of play before 2019, and BeTheBeast had three quarters of basketball and volleyball recruiters relying on their platform.

But colleges needed to see the kids. There’s nothing like video. Shane needed to get video connected to that LinkedIn profile. He needed ESPN+ combined with LinkedIn. But there are thousands of high schools, and videographers are expensive. His solution was tournaments and AI. Every high school team participates in tournaments. A major tournament can draw 350 teams playing 700 games over a long weekend. Many of the best players crammed into one place for a short period of time - much more practical for capturing video.

So, in 2019 Shane invested $2 million in AI-powered cameras to track and capture the action at tournaments. Sometimes the games were outdoors, so he needed his own sources of power. And, sometimes internet connections were spotty, so he needed his own routers and connectivity. He solved all that and created the ability to arrive, set up dozens and dozens of cameras and a network, record hundreds of games, and take it all down a few days later. 

One by one, Shane got the media rights to the biggest tournaments across the country. He negotiated with the event organizers and the mega-brands like Under Armour that sponsor them. For basketball and volleyball recruiters, paying $200 for search and video capabilities was a bargain. And for parents and players, knowing which recruiters were watching their video was riveting. 

And then the pandemic happened, and video was even more essential. And BeTheBeast had the technology and the exclusive rights, and ten years of paying dues started returning dividends. 

Last year, permanent camera placements became practical, and that’s when BeTheBeast ran into some other company’s equipment occasionally. LiveBarnis a Canadian company doing very similar things, only focused on venues instead of tournaments, and hockey instead of basketball and volleyball. Their puzzle pieces complemented each other perfectly, and four weeks ago LiveBarn acquired BeTheBeast for $17 million in stock and cash. Shane is now the VP of Business Development at LiveBarn. The combined entity is cash-flow positive and has double the reach. 

There were a number of BeTheBeast investors from Southern California, led by Pasadena Angels and Tech Coast Angels. In fact, the earliest and most involved investors were Pasadena Angels, including: John Bell, Chuck Giles, Don Hall, Dale Okuno, Bill Slattery, Stender Sweeney and David Trogan.

In recent years another 10 PAs joined the group while Don and Dale joined the Board of Directors, with Dale as the Chairman.  Over the years there were many opportunities for active participation as company management relied upon the Pasadena Angels to be their primary go-to supporters. While the investment story isn't yet complete, the company's sale to LiveBarn and the conversion of equity to a much larger and better financed parent provides a level of stability never possible with angel-only investors. And, the next two to four years should see a dramatic increase in the value of the investment and the opportunity to be an outstanding exit.

Member Profile - Larry Uhl and the
Tools of Finance

Unsurprisingly, Larry Uhl graduated at the top of his class. (He was in the top three in his eighth grade class in rural Colorado). It’s true that there were only three kids in his class, so technically, he was also in the bottom three of his class. His parents recognized his potential, and taking some advice from a seasonal ranch hand, they sent him to a military school in rural Missouri. It turned out to be a reform school, and Larry, not needing reforming, was a star pupil there, too. So, after two years, he found himself applying to and being accepted by Phillips Academy Andover. Like the statistician who had one foot in ice and one foot in boiling water, but on average his feet were comfortable, Larry had, on average, a pretty average high school experience. 

From there Larry went to Harvard and later Harvard Business School. After that he spent almost two decades at Merrill Lynch in investment banking and another two decades at UBS in wealth management. Those long tenures in financial services gave Larry a special aptitude for creative financial arrangements, and I’m not using that as a euphemism for toxic financial instruments that ignite credit crises (Larry didn’t do those). I mean it in the most complimentary sense: smart ways to accommodate different needs and objectives in a single deal.

For example, about four years ago Move2Play was getting their line ready for the holidays, and they needed funding to make it happen. Their next round was on track for Q1 of the next year, but that wasn’t going to be in time, and all they needed in the short term was a couple hundred thousand. John Bell suggested that they didn’t need equity financing, they needed inventory financing. So, the team came up with a $200K inventory loan that could be converted at a modest discount in the next round. 

Larry has been an investor in Xeal, an EV charging startup focused on apartment applications. They needed financing, but the Pasadena Angels team didn’t think that the standard two year convertible note was going to work for Xeal. Sure, that’s a conventional norm, and most people default to the old standby, but they recognized that Xeal was very likely to need more time. And, the problem with a convertible note coming due without any other financing in place is that it puts everyone in a bad place. 

The company doesn’t have the ability to convert it to the newest round of equity financing, and it doesn’t have the cash to pay it back. That leaves a very wide range of possibilities, from forcing the company into bankruptcy to just letting the loan grow more past due. The enormous gulf leads to an awkward negotiation, and the investor’s options are limited to either take what’s offered or take the whole company down by forcing it into bankruptcy. The key is to avoid getting to that place by anticipating possibilities and putting contingencies in place. 

In general, the financing should match the business plan. The trick comes in anticipating what might change when things don’t go to plan and building in contingencies. Something like 70% of startups pivot, which means that the business plan changed, which may mean that the financing deal no longer fits the plan that was agreed to. 

The answer for Xeal was to make it a three year note instead. In other cases, Larry’s started to use other provisions. Notes can include provisions to increase interest rates or principal paybacks if they aren’t converted or paid back in time. Those can seem like harsh terms, but they are gentler than BK, and they convey the urgency of meeting those financing deadlines better than a monthly phone call.

“It’s about more than the money” reflects the Pasadena Angels ability to apply a wide range of financing options, as well as the know-how to apply them intelligently to situations by anticipating possibilities based on experience. It also reflects a reputation for not exploiting that advantage of know-how and experience over entrepreneurs. For Larry, the fun challenge is to use that big bag of financing tools creatively to solve problems before they happen.

Thanks...

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We hope you enjoyed this edition of the Pasadena Angels Monthly Newsletter. Any suggestions for future pieces, questions or comments? Please email me at dave@veritasri.com

Dave de Csepel
Chairman, Pasadena Angels

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